As the end of 2010 draws near, we want to highlight some of the key year-end action items for benefit plan sponsors to consider before 2011.
RETIREMENT PLANS
Pension Protection Act of 2006 (PPA)
Retirement plans that have a calendar plan year may need to be amended by the end of 2010 to reflect certain PPA provisions. Although most employers amended plans last year for PPA, the amendment deadlines for the following items were extended to the end of 2010. Consequently, you should review your plan with your advisors to determine whether additional PPA amendments are needed to:
- Provide employees with freedom to divest publicly traded
employer securities.
- Incorporate funding-based restrictions on benefits and benefit
accruals provided under single employer defined benefit plans. The
IRS has stated informally that it may extend this amendment
deadline beyond 2010, but has not yet made an official
announcement.
- Permit rollovers of death benefits by non-spouse beneficiaries
to individual retirement accounts. Previously, under PPA, this was
an optional plan provision; however, the Worker, Retiree, and
Employer Recovery Act of 2009 (WRERA) made this a mandatory
feature, which must be adopted by the end of 2010 if not done so
already.
- Reflect special vesting and benefit accrual rules for cash
balance and other hybrid plans.
Note: Governmental retirement plans have until the end of the 2011 plan year to adopt PPA amendments.
Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART)
By the end of 2010, retirement plans that have a calendar plan year may also need to make amendments to implement the HEART Act's various provisions, including:
- Payment of death benefits with respect to participants who die
while performing qualified military service. This is a mandatory
amendment.
- Amending the plan's definition of compensation for Internal
Revenue Code Section 415 purposes to include differential wage
payments tied to a participant's military service. This is a
mandatory amendment that must be adopted, regardless of whether an
employer makes such payments.
- Treating differential wage payments as plan compensation for
purposes of contributions and benefit accruals. This is an optional
amendment.
- Continuing benefit accruals for participants who die or become
disabled during military service. This is an optional
amendment.
- Applying a 6-month suspension of employee contributions for
participants who receive plan distributions after qualified
military service of over 30 days. Defined contribution plans have
the option of treating participants who perform qualified military
service of over 30 days as having severed from employment and being
eligible for plan distributions. For plans that choose to offer
such distributions, the 6-month suspension is mandatory and must be
adopted by the end of 2010.
- Elimination of the December 31, 2007 expiration date for
qualified reservist distributions. HEART eliminated the requirement
under PPA that participants eligible for qualified reservist
distributions had to be called to duty before December 31, 2007.
Distributions are now extended to individuals called to duty after
this date.
Note: Governmental retirement plans' HEART amendments are not due until the end of the 2012 plan year.
Additional Provisions
- In-plan Roth conversions were offered as a new optional plan
feature under the Small Business Jobs Act of 2010 (SBJA), effective
earlier this fall. Plans may allow direct rollover of amounts from
a non-Roth account to a Roth account within the plan, instead of a
rollover to a Roth IRA. The IRS is expected to provide a delayed
period for adopting amendments related to the Roth conversion
provisions; however, if a plan sponsor needs to add Roth
contributions to implement the conversion feature, the plan must be
amended accordingly by the end of this year, if the plan is a
calendar year plan.
- Discretionary amendments (those that are not legally required)
reflecting changes in the terms or design of a plan generally must
be adopted by the end of the plan year in which they become
effective, so be sure to add any such amendments to the list of
year-end items.
HEALTH & WELFARE PLANS
Health Care Reform
There are a handful of year-end actions required by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (PPACA):
- Effective January 1, 2011, health flexible spending accounts,
health savings accounts, and health reimbursement accounts will no
longer be permitted to reimburse participants for over-the-counter
medicines, unless the participant has a prescription for the
medicine or the medicine is insulin. Starting in January, these
plans must be operated to reflect these new restrictions, even
though the deadline for adopting the corresponding plan amendment
has been extended to June 30, 2011.
- Also effective January 1, 2011, health plans must allow
participants to cover their adult children up to age 26 (although
there are certain nuances that apply to health plans that elected
to be grandfathered under PPACA). Plans could have adopted this
provision early, allowing adult children to remain covered in 2010.
Any plan that adopted the provision early must be amended before
the end of the year if it has a calendar plan year.
Mental Health Parity
- The Mental Health Parity and Addiction Equity Act became
effective as of January 1, 2010 for calendar year plans. By the end
of this year, health plans with a calendar plan year must comply
with applicable regulations that were issued earlier this
year.
State Children's Health Insurance Program
- By January 1, 2011, group health plans must distribute state
children's health insurance program (CHIP) notices. Many plans
sent this notice with their open enrollment materials, but any plan
that did not do so should plan to distribute the notice by the end
of 2010. A sample CHIP notice can be found at http://www.dol.gov/ebsa/pdf/chipmodelnotice.pdf.
Upcoming Health and Welfare Plan Items
- In 2011, medical plans, wrap plans, and summary plan
descriptions will need to be updated for health care reform
changes. For example, plans will need to be amended for the new
coverage requirements for adult children, for mandatory market
reform changes, for the new internal claims and external review
procedures, and to include PPACA-required statements of
grandfathered plan status, as applicable.
- In 2010, proposed regulations were issued under HIPAA. These
regulations expanded the definition of "business
associates," applied the requirements of HIPAA directly to
business associates, created new rules surrounding marketing of and
access to protected health information, and added requirements to
entities' Notice of Privacy Practices. While these regulations
are currently in proposed form, they will likely be finalized in
2011.
- Under PPACA, employers must report the value of health care
coverage on each employee's Form W-2. The effective date of
this requirement has been deferred, and reporting does not have to
begin until 2012. Additional guidance on the reporting obligation
is expected.
- New COBRA regulations are expected next year regarding the
calculation of COBRA premiums.
EXECUTIVE COMPENSATION
- Any company with plans or agreements providing nonqualified
deferred compensation that do not address Internal Revenue Code
Section 409A at all, or that may be out of compliance with Section
409A, may be able to take advantage of a small window of time,
before the end of 2010, for making penalty-free corrections to plan
documents. Eligible corrections will need to be made by the end of
this year. See our recent alert for additional details: Year End Deadline for Penalty-Free Section
409A Corrections.
The members of Venable's Employee Benefits & Executive Compensation team are available to help you implement any year-end amendment or plan design changes
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.